Establishing a financial framework for your biotech startup is crucial for your long-term success. One of the fundamental building blocks in the accounting process is the chart of accounts (COA). While many types of accounts are common to most businesses, your startup will need a chart of accounts tailored specifically to the unique needs of your growing biotech venture. From navigating regulatory requirements to optimizing financial transparency, a well-structured chart of accounts can empower biotech founders to effectively manage their finances and drive innovation forward.
Biotech companies have unique accounting needs
Biotech startups focus on leveraging biological processes, organisms, or systems to develop innovative products, technologies, or services aimed at addressing challenges in healthcare, agriculture, environmental sustainability, or other related fields. That also means biotech startups need accounts that other businesses may not, for things like laboratory equipment maintenance or expenses related to clinical trials.
Specialized chart of accounts that a biotech startup might use
Kruze Consulting uses six-digit accounting codes in our charts of accounts, which allows us to create more unique accounts in each category, to capture more information. We have more detail on charts of accounts here.
We use the following categories and number groupings:
| Account Category | Account Number Range |
|---|---|
| Current Assets | 100000 -199999 |
| Liabilities | 200000 - 299999 |
| Equity | 300000 - 399999 |
| Sales | 400000 - 499999 |
| Cost of Good Sold | 500000 - 599999 |
| Sales, General, and Administrative Expenses | 600000 - 699999 |
| Research & Development Expenses | 700000 - 799999 |
| Other Operating Expenses | 800000 - 899999 |
| Other Income / Expenses | 900000 - 999999 |
Under these accounts, you’ll find sub-accounts that roll up into the main asset category. The first digit of each account number indicates which group the account belongs to.
The table below shows some of the different types of accounts a biotech firm may need, along with some of the more standard account types. The account numbers follow Kruze’s standard numbering system, but individual account numbers could vary.
NOTE: This is not a comprehensive list – this is just a sample of the accounts your biotech company may require.
Biotech specific chart of accounts
| Account Number | Account Name | Account Type | Detail Type |
|---|---|---|---|
| 104000 | Cash | Current Assets | Checking |
| 120000 | Accounts Receivable | Current Assets | Accounts Receivable |
| 139000 | Inventory | Current Assets | Inventory |
| 131100 | Prepaid Expenses | Current Assets | Prepaid Expense |
| 153000 | Office Equipment | Current Assets | Furniture & Equipment |
| 159000 | Accumulated Depreciation | Current Assets | Accumulated Depreciation |
| 210000 | Accounts Payable | Liabilities | Accounts Payable |
| 220000 | Credit Card | Liabilities | Credit Card |
| 237000 | Deferred Revenue | Liabilities | Deferred Revenue |
| 240000 | Long-term Liabilities | Liabilities | Loan |
| 301000 | Common Stock | Equity | Common Stock |
| 309000 | Retained Earnings | Equity | Retained Earnings |
| 4000000 | Sales | Sales | Sales |
| 406000 | Grants Revenue | Sales | Grants |
| 602100 | Salaries and Wages | Expense | Salaries & Wages |
| 612000 | Utilities | SG&A Expense | Utilities |
| 614000 | Rent | SG&A Expense | Rent |
| 604000 | Professional Fees | SG&A Expense | Professional Fees |
| 698000 | Insurance | SG&A Expense | Insurance |
| 700000 | Research and Development Expenses | R&D Expense | Research & Development |
| 730000 | Laboratory Supplies | R&D Expense | Supplies |
| 810000 | Depreciation Expense | Other Operating Expenses | Depreciation |
| 901000 | Interest Income | Other Income / Expenses | Interest Income |
| 902000 | Taxes and Licenses | Other Income / Expenses | Taxes & Licenses |
Types of accounts a biotech firm may need
While the chart of accounts in the table above covers some of the essential financial categories for a biotech, there might be some unique accounts specific to a biotech startup’s operations that are not part of a standard chart of accounts. Here are a few potential unique account categories:
- Clinical Trial Expenses. This account would track the costs associated with conducting clinical trials for medical therapies, including expenses related to patient recruitment, monitoring, and regulatory compliance.
- Biomedical Research Grants. If the research group frequently receives grants specifically for biotech research, it might be beneficial to have a separate account to track the funds received and expenses incurred under these grants.
- Intellectual Property Expenses. Given the focus on developing biotech, there could be expenses related to obtaining patents or licensing intellectual property rights for proprietary technologies or discoveries.
- Drug Development Costs. This account would track expenses related to the development of new drugs or therapies, including costs for preclinical studies, formulation development, and toxicology testing.
- Lab Equipment Maintenance. Since the research likely relies heavily on specialized laboratory equipment, having a separate account to track maintenance and repair costs for this equipment could be useful.
- Clinical Regulatory Compliance Expenses. This account would capture costs associated with ensuring compliance with regulatory requirements for clinical trials and drug development, such as fees for regulatory submissions and inspections.
These unique accounts would provide more detailed insight into the financial aspects of your biotech startup’s operations, and help in accurately tracking expenses and revenues specific to your activities in biotechnology research and development.
The process of building a chart of accounts for your biotech startup begins with a review of your business to create a list of the types of accounts you’ll need.
To find out more about setting up a COA for your business, contact us.